US CORP BONDS-IG MIDDAY:

Cliffs in focus as new issues slow

February 13, 2013|Reuters

By John Balassi

Feb 13 (IFR) - With only two high-grade deals vying forinvestor interest in the primary market on Wednesday, investorfocus was diverted to an unlikely source in the secondary marketfollowing a negative earnings report from Cliffs NaturalResources.

After reporting a substantial quarterly loss, the iron oreand coal producer declared aggressive cost-cutting measuresaimed at preserving capital. The miner slashed its dividend by76% and announced a US$900m secondary public offering, withproceeds being used to repay debt outstanding under its termloan facility.

The company's deleveraging objective is prudent in terms ofcash management for bondholders, as volatile price swings incommodities have substantial impact on cashflows. This is asharp reversal from last March, when Cliffs more than doubledits dividend payout and pledged to focus on boosting returns toshareholders.

Market participants were selling the stock on Wednesday,down about 19%, while Cliffs bonds attracted a substantial flowof capital. The 3.95% 2018s traded 25bp tighter at T+238bp, the4.875% 2021s were 18bp tighter at T+267bp, and the 6.25% 2040swere 34bp tighter at 310bp over Treasuries.

On the new issue front, Discover Bank is in themarket with a USD benchmark 3(a)(2) exempt five-year seniornote. Proceeds of the deal, led by Citigroup, Deutsche Bank andRBS, are being used for general corporate purposes. Priceguidance is T+110bp area (+/- 5bp), which tightened in frominitial price thoughts of T+125bp.

Also in the market is Praxair Inc, which is makingthe rounds with a US$750m SEC registered two-part deal thatconsists of three-year and 10-year notes. BAML, HSBC and MUS arethe joint books on the deal. Initial price guidance is T+35bparea on the 3yr and high 70s on the 10yr.

The broader credit market is relatively strong, andapproaching the best levels of the session. The CDX IG19 istrading 1 3/4bp tighter at 85.4375-85.8125 and the HY19 is 1/4of a point higher at 102.65625-102.75. Meanwhile, the 10-yearyield has breached the psychological 2% resistance level and istrading near 10-month highs.

In single-name credits, Comcast bonds remain themost active, according to Tradeweb, following the company'sannouncement that it will buy the remaining 49% of NBC Universalfrom GE in a transaction worth US$16.7bn. The CMCSA 4.25% 2033swere trading 13bp tighter at T+115bp and the 4.65% 2042s were11bps tighter at 135bp over Treasuries.